Wage Garnishment - States That Prohibit

[IOU]

Good evening.

Short background - I have made low six figures for over a decade, never been in financial trouble before, no marks on my credit, etc.

Live in a small town and last summer was laid off. While trying to find a new job, decided to get back into small business ownership (which I have done before). Took out $155k in unsecured loans with two banks. The economy took a wicked turn for the worst and the business has not made me a dime. I have been living off of savings since last summer and am running out of reserves.

My attorney recommended a bk attorney just to get the facts since I have no experience in this. The bk attorney tells me that I am not a good candidate for Ch. 7 because the debt is too large and too recent. Someone will stipulate I abused my credit and block the filing.

The bk attorney then offered two solutions. 1) Wait a year and then reapply. I may be a better candidate. 2) Because I will need to relocate to find a new job, he suggested that I consider a non-communal state (all debt is under my name and not my non-working wife) and / or one of the 3 - 4 states that don't allow wage garnishment. If they do sue and win, they can't do anything.

After a great deal of research, I found only one comment regarding successful law suits in Texas where lawyers have sought the original of the check (another state maybe with large companies) and seek garnishment from there.

My question (yes, I'm finally getting there) then is this really possible? Can one move to a state which does not permit wage garnishments and get off (other than ruined credit)? My wife has excellent credit and would go back to work as well.

My goal is to pay my debt until I simply can't. However, I have paid my fair share of taxes and want to know what programs and laws apply. I have always lived my life with social responsibility, however, I may need to resort to legal responsibility.

Any input? (by the way, the business is up for sale and some of that will go back to the debtors. How much it's worth in this economy is the other $1 mil. question.

Thanks.

[Flamingo]

In the non-wage garnishment states (i.e., NC, SC, Texas, PA, etc.), there are other means for collecting on judgements (i.e. tax refunds, real estate judgments, etc.) that can still be put into place. One would have to investigate each state as to what else can be done by creditors if there is no wage garnishment.

As BigBoy stated, you may want to investigate Chapter 13 in your situation.

[rockyroad]

I thought one wasn't subject to the means test if over 50% of the debt is business debt.
He used the loans to open a business last summer. Actually it's almost been a year and I'm assuming he has made SOME payments on the loan.

[catleg]

Do you not own a house?

[HHM]

Keep in mind, many of those states have certain residency requirements before you can be subject to the non-garnishment benefit.

Big picture, do you really want to up-end and move just for the sake of avoiding creditors?

[IOU]

Follow Up

Good morning and thank you all of your input.

To respond to some of the points made:

1. The largest portion of the loans were taken out last summer. I have continued to tap into those lines of credit as recently as last December.

2. Although the loans were used to establish the business, because they're personal and not under the LLC, the bk lawyer felt there was a greater chance of a fight.

3. I do own a home, however, will be selling it for my relocation. The realtor believes I should be able to get out of it for what I owe. If not, the short sale will be minimal if necessary.

One person made the comment for me to consider a ch. 13 review. I don't have any knowledge on that either. My attorney simply said if you're gonna take the hit, have that much debt and it's biz related (I didn't go out and buy a Porsche), why not discharge it all. After the consultation, however, he re-thought his position.

Although I can review the other threads on Ch. 13, it was my understanding that if you make over the national median wage they can only restructure your payment plan for no longer than 5 years. If the principle is $125k, that would make it roughly $2075 a month with no interest. Is that how it works or do you still pay interest and is the plan designed to get evertything back?

Thanks again for all of your assistance!

[HHM]

That is not how chapter 13 works.

If you are over median, all that means is you may not qualify for a chapter 7. However, the monthly payment in a chapter 13 is based on your disposable monthly income, (income - expenses). That is all you pay. Thus, if after necessary living expenses, you only have $500 per month left over, that is all you will pay in the chapter 13 for 60 months. Any remaining balance owed after the plan terminates is discharged (i.e. eliminated).

[catleg]

If the business isn't making any profit and your have no equity in the house you should be fine for the ch7. The reasons for the 13 would be if you had too high income, had assets to protect, and/or wanted to lien strip a 2nd mortgage on your home.